Santander exiting Personal Lending Business

[muflafler]

Santander, which currently has an agreement with LC to purchase up to 25% of LC's total loan originations, announced today in their quarterly earnings report that they will be completely exiting the personal lending business and putting all their existing personal loan assets up for sale.

The 25% was a cap, not a target, and I'm not sure if LC had disclosed the % that Santander actually purchased.  Presumably, all of the loans purchased by Santander had been purchased in the whole-loan market. 

What this means for us it seems, is that up to 25% of LC's total loan originations, which had previously not been offered on the regular platform, will now be offered on the platform and will
be available to individual investors.

[PhilGD]

Can you post a link with more info?

I'm curious if there's any speculation out there as to why they've ended the arrangement. The fact that they're selling off all of those assets leads me to believe that the program didn't perform as well as they thought it would.

[Fred93]

Well, here's some, but its indecipherable...
http://www.fool.com/investing/general/2015/10/29/why-santander-consumer-usa-stock-plummeted-16-toda.aspx

Santander indicated that it may exit the personal lending business in its press release, and subsequently moved its personal lending portfolio to its "held for sale" bucket.

In reclassifying its portfolio, Santander's net charge-off ratio rocketed to 14.4% this quarter, up from 5.3% as of June 30. Notably, its adjusted net charge-off ratio, which excludes the charge for its personal portfolio, rose to 8.7%, higher than its 5.3% ratio last quarter, but mostly in line with its adjusted NCO ratio of 8.4% a year ago.

Moving the personal portfolio to held-for-sale resulted in an adjustment of the loans' carrying value. In the press release, the company noted that it had to carry the portfolio at the "lower of cost or market" value, resulting in the increase in charge-offs this quarter.

Clearly something wasn't working well.  I suppose that the thing with LC was a small fraction of Santander's personal loan portfolio.  Actually, from the press, I can't even tell for sure that the LC deal is affected at all.

[jennrod12]

What this means for us it seems, is that up to 25% of LC's total loan originations, which had previously not been offered on the regular platform, will now be offered on the platform and will
be available to individual investors.

How do we know that other institutional investors won't pick up those loans on the whole loan market?  We don't know what % Santander was actually buying, it could have been negligible.

Jenn

[FILTER]

I agree, maybe this LC note investment didn’t meet their expectations.  I’m curious to know what %, dollar amount, or number or notes that Santander invested in.   Makes you wonder whether the previous streak of anemic loan drop to retail investors was somehow related to Santander’s portfolio.   Wonder when(or if) Santander will liquidate this investment to retail investors and/or other institutions? As per article, “Given the size of Santander's $2.3 billion portfolio”, this could be a considerable quantity of notes/money?

[wiseclerk_com]

The 25% was a cap, not a target, and I'm not sure if LC had disclosed the % that Santander actually purchased.  Presumably, all of the loans purchased by Santander had been purchased in the whole-loan market. 

Laplanche said in todays call on quarterly results that Santander accounted for a "single-digit" percentage of volume

What this means for us it seems, is that up to 25% of LC's total loan originations, which had previously not been offered on the regular platform, will now be offered on the platform and will
be available to individual investors.

No. If i understood Laplanche right today, Santander was replaced by other institutional investors.

[FILTER]

Thanks Wiseclerk for the data - we understand how much and where Santander's portfolio is likely to go.

[SeanMCA]

What's up with this? I thought it was "impossible" to lose money on Lending Club. They lost $232 million from Lending Club loans directly? What am I missing here?

Santander reported a fourth-quarter loss of $232 million this week on its unsecured personal loan portfolio, $123 million of which came from borrower defaults and $109 million that was related to market discounts on the loans held for sale, according to company filings.
“In light of the damage that the personal loan portfolio inflicted on Santander’s income statement in 4Q15, we will be relieved when Santander is out of this business,”

http://www.bloomberg.com/news/articles/2016-01-28/santander-said-close-to-selling-1-billion-of-lendingclub-loans

[Rob L]

What's up with this? I thought it was "impossible" to lose money on Lending Club. They lost $232 million from Lending Club loans directly? What am I missing here?

If I read it correctly the LC loans were an unknown percentage of their personal lending book.
I haven't seen anything that breaks out LC from the rest of their holdings.

It might be worth mentioning LC originates whole loans for institutions that are riskier than those available to retail investors.
Who knows how much of these Santander has in their book.

Anyway there's probably no way any of these loans will wind up in a retail investor's portfolio except through some securitization mechanism.

[nonattender]

It would also be highly embarassing for Santander to still be holding onto these (or to admit they were profitable - by breaking them out)
when LC announces its next product line, which may or may not be somewhat competitive with Santander's automobile finance business.

But I'm the suspicious type who doesn't trust PR and tries to read between the lines...

[lascott]

Sounds like Santander is into "nonprime (601-660), subprime (501-600) or deep subprime (below 500)" borrowers?

Title: How to buy a new car with bad credit
https://www.santanderconsumerusa.com/blog/buy-new-car-bad-credit/

(Lenders such as Santander Consumer USA Inc. provide funding to car buyers across the credit spectrum, including nonprime and subprime, through Santander Auto Finance...

Title: Here are some auto loan shopping tips for subprime borrowers
https://www.santanderconsumerusa.com/blog/here-are-some-auto-loan-shopping-tips-for-subprime-borrowers/

But if you are among the approximately 25 million new- and used-car buyers last year considered nonprime (601-660), subprime (501-600) or deep subprime (below 500), based on data from Experian Automotive...

Did they get the Policy 2 LendingClub loans?

...rundown on Policy Code 2 loans:
* These are loans made to borrowers that do not meet Lending Club’s current credit policy standards.
* The FICO scores on these borrowers are typically 640-659, below the 660 threshold on Policy Code 1 loans.
* These loans are made available to select institutional investors who have a great deal of experience with consumer loans in this credit spectrum and with Lending Club.
* They are only available as whole loans at this time.

via http://www.lendacademy.com/policy-code-2-loans-lending-club/

[Fred93]

What's up with this? I thought it was "impossible" to lose money on Lending Club. They lost $232 million from Lending Club loans directly? What am I missing here?

What you are missing...

Santander has not disclosed what they lost or did not lose on LC loans.  For all we know, they lost money on other loan programs in the category, and threw the LC baby out with the bathwater.

Also, it is certainly possible to lose money on LC loans.  Choose poorly, and you will likely lose money.  We don't know Santander's strategy.  Maybe it was stupid.

Anyway, fewer investors is good for us investors.  Less demand helps the supply/demand balance.  Hope it scares away other banks too.

[rawraw]

Santandar isn't a bank IIRC. . . don't confuse the parent with the sub

SC was most likely playing in LC subprime loans, which we don't have data on.

[lascott]

SC was most likely playing in LC subprime loans, which we don't have data on.

The article and its sources thought so.

http://www.bloomberg.com/news/articles/2016-01-28/santander-said-close-to-selling-1-billion-of-lendingclub-loans

Those loans consisted primarily of lower prime and non-prime credit.

[Fred]

They lost $232 million from Lending Club loans directly? What am I missing here?
http://www.bloomberg.com/news/articles/2016-01-28/santander-said-close-to-selling-1-billion-of-lendingclub-loans

Those were 2015 Q4 numbers, which I presumed was the quarter they finally closed/sold all LC 2.2B positions.

What's not reported was the result from prior quarters, including interest earned.  The early months were where the interests were highest.

I would think Santander probably didn't lose that much, perhaps even had a little profit overall.

I thought it was "impossible" to lose money on Lending Club.

Well, I now believe that many people lose money in LC. 

See the "10th Percentile Return" red line on the "Diversification Can Reduce Volatility of Returns" chart in https://www.lendingclub.com/info/statistics-performance.action